S&P 500 Rallies to Close Out Best Day in Almost Two Months

  • U.S. stocks climbed on Wednesday, following a rally on Tuesday after Treasury Secretary Steven Mnuchin suggested to lawmakers that the Trump administration might be open to a stimulus package as large as $1.5 trillion. The S&P 500 rose 1.5 percent to set another record. It was the index’s best day since July 6.

  • The Dow Jones Industrial index closed above 29,000 for the first time since February, though it is still more than 450 points off its record high. President Trump crowed about the index’s performance on Twitter: “You are so lucky to have me as your President 😉”

  • Shares of giant technology companies helped lead the gains in the S&P 500, where the large weighting of such stocks gives them outsized influence. Twitter was one of the best-performing stocks of the day, rising more than 6 percent, Alphabet rose nearly 4 percent and Facebook rose by more than 2 percent.

  • But other more defensive sectors, such as utilities and health care, also fared well, generating the highest percentage gains of any of the S&P 500’s 11 sectors. Energy was the only S&P sector to decline.

  • The ADP report on private sector payrolls, which was released Wednesday morning, showed that hiring increased in August from the prior month but fell below what economists had expected. Investors are more focused on the Labor Department’s monthly jobs report, which is set to be released on Friday.

  • The downbeat economic data seemed to drive increased expectations from investors that more support from the Federal Reserve, in the form of lower long-term interest rates, would be coming. The yield on the 10-year Treasury note fell to its lowest level in more than a week, at 0.65 percent.

  • European markets were also higher, with benchmark indexes up more than 1 percent. Asian markets ended the day broadly lower, a trend defied by Japan’s Nikkei, which closed up about half a percent.

  • Investors were encouraged by fresh economic data from around the world that signaled a recovery from the devastation of the pandemic was underway. U.S. manufacturing data released Tuesday showed that new orders surged in August. A report from the eurozone Tuesday also showed that manufacturing activity had increased for the second straight month.

Credit…Amr Alfiky/The New York Times

The amount of U.S. government debt will nearly outpace the size of the nation’s economy in the 2020 fiscal year, the Congressional Budget Office said on Wednesday, a level not reached since the immediate aftermath of World War II and a direct result of the pandemic recession.

The federal budget deficit is expected to reach $3.3 trillion for the fiscal year, which ends on Sept. 30, the budget office said. Total debt held by the public is expected to reach an estimated 98 percent of the size of the economy — gross domestic product — for the year. It falls just short of equaling the size of the economy: The last fiscal year when the amount of federal debt was larger than the sum of the nation’s annual economic output was in 1946.

The budget office now expects the debt to exceed the size of the economy in fiscal year 2021. By 2023, it said on Wednesday, it expects the debt as a share of the economy to reach its highest level in American history, surpassing the World War II era.

The United States appeared to have passed the debt milepost in June, when the total debt exceeded the size of a year’s worth of economic output.

The pandemic recession plunged the economy into its sharpest quarterly contraction in growth in nearly 75 years, ballooning the deficit in the process. With millions out of work and businesses shuttered, tax revenues fell for the federal government, along with states and municipalities. Congress and President Trump moved quickly to approve more than $3 trillion in new federal spending to help businesses and individuals through the abrupt slowdown in economic activity. All of those factors converged to send deficits — which had grown steadily even in the expansion years under Mr. Trump before the crisis hit — soaring.

While most economists think the federal government should not be worried about deficit spending in the midst of a severe downturn, concerns over the amount of federal borrowing have hindered bipartisan negotiations over another round of economic assistance this fall. Democrats started talks pushing for a more-than $3 trillion package. Republicans countered with about $1 trillion, citing, in part, concerns over the rising amounts of debt.

But even many deficit hawks in Washington, while alarmed by the swift rise in debt, continue to urge lawmakers to spend more to stimulate the recovery.

“I think we should think and worry about the deficit an awful lot,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington, “and we should proceed to make it larger” this fall.

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